A Collaborative Model of the Corporation

Two models of the corporation dominate legal discourse. The first is the management-power model, which is premised on vesting corporate insiders -- officers and directors -- with primary decision-making power. The second is the shareholder-power model which contemplates increased shareholder power to reduce managerial agency costs and self-dealing. Both models assume that insiders and shareholders engage in a competitive struggle for corporate power and address, descriptively and normatively, the appropriate allocation of that power.

Corporate law and practice have moved beyond existing theories of the corporation framed in terms of a competitive power struggle between insiders and shareholders, however. Increasingly, the insider- shareholder dynamic in the modern corporation is collaborative, not competitive. This Article responds to this development, defending a collaborative model of the corporation on both descriptive and normative grounds. In particular, the Article uses game theory to demonstrate how insider-shareholder collaborations are likely to produce complimentary information that increases firm value.

The collaborative model offers several insights for corporate governance. First, it suggests that, to enhance collaboration, core governance provisions should be the product of bilateral action involving both insiders and shareholders. Second, board insulation mechanisms should require shareholder input. Finally, doctrines constraining director use of corporate information should facilitate rather than frustrating information sharing between activist directors and their principals. In turn, implementation of these principles requires rethinking and adapting several existing principles of corporate law.